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    Preffered Stock Valuation

    Uploaded by

    Jeanne Sherlyn Tello
    Jones Design has outstanding preferred stock with a $80 par value that pays a $6.40 annual dividend. Similar preferred stocks currently earn a 9.3% annual return, valuing Jones' stock at $68.82 per share. If an investor buys at this price and later sells when similar stocks require a 10.5% return, she would lose $7.87 per share as the value would decrease to $60.95 due to the higher required return.

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    Preffered Stock Valuation

    Uploaded by

    Jeanne Sherlyn Tello
    675 views1 page
    Jones Design has outstanding preferred stock with a $80 par value that pays a $6.40 annual dividend. Similar preferred stocks currently earn a 9.3% annual return, valuing Jones' stock at $68.82 per share. If an investor buys at this price and later sells when similar stocks require a 10.5% return, she would lose $7.87 per share as the value would decrease to $60.95 due to the higher required return.

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    Jones Design has outstanding preferred stock with a $80 par value that pays a $6.40 annual dividend. Similar preferred stocks currently earn a 9.3% annual return, valuing Jones' stock at $68.82 per share. If an investor buys at this price and later sells when similar stocks require a 10.5% return, she would lose $7.87 per share as the value would decrease to $60.95 due to the higher required return.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    675 views1 page

    Preffered Stock Valuation

    Uploaded by

    Jeanne Sherlyn Tello
    Jones Design has outstanding preferred stock with a $80 par value that pays a $6.40 annual dividend. Similar preferred stocks currently earn a 9.3% annual return, valuing Jones' stock at $68.82 per share. If an investor buys at this price and later sells when similar stocks require a 10.5% return, she would lose $7.87 per share as the value would decrease to $60.95 due to the higher required return.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    Jeanne Sherlyn Tello

    CBA FM TTH 3:00-4:30 p.m

    Preferred stock valuation

    Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue
    has an $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks
    are currently earning a 9.3% annual rate of return.

    a. What is the market value of the outstanding preferred stock?


    𝐷
    = (𝐾1)
    5
    $6.40
    = 0.093
    = 68.82
    b. If an investor purchases the preferred stock at the value calculated in part a, how much
    does she gain or lose per share if she sells the stock when the required return on similar-
    risk preferred stocks has risen to 10.5%? Explain.
    𝐷
    = (𝐾1)
    5
    $6.40
    = 0.105
    = 60.95
    When the required rate of return increases, the value of preference share will decrease. Thus, the
    investor would lose 7.87 per share because 68.82-60.95

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